Concentrated liquidity is a design used by Uniswap v3 and similar automated market makers that lets liquidity providers deposit capital only within a specific price range, instead of spreading it across the entire curve from zero to infinity the way earlier AMMs required. This can achieve dramatically higher capital efficiency, since funds sit where trading actually happens.
Choosing a range for the pair you're providing
Stablecoin pairs such as USDC and USDT barely move relative to each other, so an extremely narrow range, for example 0.999 to 1.001, captures fees efficiently with very little impermanent loss risk. Volatile pairs like ETH/USDC or BTC/USDC need a different approach entirely. Setting the range using Bollinger Bands or a 14-day ATR channel on the daily chart gives boundaries that reflect the asset's actual expected volatility, rather than an arbitrary guess at where price might land.
Managing a position once it moves out of range
When price trends outside the chosen boundaries, the position stops earning trading fees and its composition shifts entirely into whichever asset has underperformed. At that point there's a real decision to make: rebalance into a new range, which costs gas and locks in the impermanent loss that has already accrued, or wait and hope price reverts back into range on its own. Tools like Revert Finance or DefiLlama can help track a pool's fee-to-impermanent-loss ratio over time, which makes that decision less of a guess.
Avoiding the rebalancing trap
It's tempting to rebalance every time a position drifts out of range, but doing so during high-gas periods can quietly erase the fee income the strategy was supposed to generate in the first place. A more disciplined approach sets a threshold, in terms of either time out of range or accumulated impermanent loss, before committing to the cost of a rebalance.